U.S. Teenagers Really Don't Know the Value of a Dollar, Global Test Shows

A majority of U.S. 15-year-olds can recognize a bill for services, but they struggle to understand most financial concepts they will need to master as adults, from taxes to retirement savings, according to the first test of financial literacy in the Program of International Student Assessment.

About 29,000 students from 18 countries and economies in the Organization for Economic Cooperation and Development took part in the financial literacy PISA. The test looks at personal finance, rather than macro-economic concepts: "Financial literacy is concerned with the way individuals understand, manage and plan their own and their households' financial affairs, and with their awareness and understanding of the overall financial and economic landscape they live in," said Michael Davidson, thehead of OECD's early childhood education and schools division. "It is also recognised that good understanding, management and planning on the part of individuals has some collective impact on the wider society in contributing to national and even global stability, productivity and development."

U.S. students performed barely in the middle of the pack, with an average score of 492 out of a possible 700, and the U.S. lags considerably behind the top performers like Shanghai, China. As the chart below shows, the percentage of American students who scored at level five, which requires the most financial fluency, was half the percentage who scored at the lowest level of financial literacy.

Moreover, Davidson said, "Shanghai is achieving performance throughout its (student) distribution. Their middle-performing student is equal to the top 10 percent of students in the U.S.," and middle-performing students in the United States scored at the level of Shanghai's bottom 10 percent of students.

Money Problems

Many countries' financial literacy scores were generally in line with their mathematics and reading scores on the PISA, but this assessment underscores students' adeptness with problems they will face throughout their adult lives. For example, the following sample problem—answered correctly by more than nine out of 10 students—gauges whether students can identify an invoice, one of the most basic financial documents:

While the level five sample problem is intended to be difficult, it covers loan refinancing—a piece of financial literacy which the recent housing crisis proved many Americans struggle with long after school:

"Generally speaking to do well on a PISA test... you really need to have deep-thinking skills," Davidson said. "To do well on PISA is well beyond simply repeating knowledge; it's using knowledge in new and unfamiliar situations, collecting disparate pieces of information. ..."

It's already been shown that low-income students trying to get to and succeed in college can benefit significantly from help and training in the financial planning required for higher education. For example, a 2012 experimental study at the National Bureau of Economic Research found that low-income high school seniors were 8 percent more likely to complete at least two years of college (36 percent versus 28 percent) if they and their parents had been given help filling out federal financial aid forms and estimating tuition costs at various local colleges as part of regular tax filing assistance.

Deeper Learning

Interestingly, there was little correlation between countries who had formal financial literacy curriculums in schools and better performance on the PISA. Rather, OECD found students developed better concepts of finances when they were actually using money on a regular basis. For example, across OECD countries, students who managed their own bank accounts scored 21 points higher on average than students who did not—though there was no statistically significant advantage for American students in particular.

What also produced higher student scores? The willingness to grapple with complex problems: U.S. students who disagreed with the statement "When confronted with a problem, I give up easily"—a sign of a growth mindset—scored nearly 80 points higher than those who agreed they would give up. Moreover, those who said, "I like to solve complex problems" scored more than 40 points higher than those who didn't.

Source of charts above: OECD.

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